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UBC Theses and Dissertations

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UBC Theses and Dissertations

Essays on factor misallocation Pulido Pescador, José


This thesis studies different implications of micro-level factor misallocation across heterogeneous agents. It consists of three chapters. The first chapter examines the impact of firm-level factor misallocation on an open economy’s comparative advantage. After providing empirical evidence on how Colombian metrics of firm-level misallocation are related to measures of its revealed comparative advantage, I explore the general equilibrium effects of such misallocation and its impact on industries' export capabilities. I compute a counterfactual equilibrium in which the misallocation is removed in Colombia. The reallocation of factors leads to an important change in the country's industrial structure and a rise in the exports-to-GDP ratio of 18 p.p. This industrial composition effect is absent in the workhorse models of firm-level factor misallocation under closed economies. Based on a co-authored paper with Tomasz Święcki, the second chapter studies the origin of the income gaps between agricultural and non-agricultural workers in developing countries. We use Indonesian data to document a robust premium for workers who move out of agriculture and a loss for those who move into agriculture, even if they do not migrate. We argue that to generate simultaneously these within-worker premia and the main moments of the joint sector-income distribution over time, self-selection needs to take place under barriers to sectoral mobility that misallocate workers across sectors. We find that removing such barriers prompt 30% of the workforce to reallocate and aggregate output to increase by 17%. The third chapter extends the standard model of firm-level factor misallocation in a closed economy in two dimensions. First, I introduce idiosyncratic demand shocks. This allows me to evaluate whether metrics of misallocation predict plants' survival, a test used to claim that misallocation metrics are empirically swamped by demand shocks. I argue that unconditional estimates in this test are biased in the presence of firms' selection, which would explain the puzzling empirical findings. Second, I compute the TFP gains of removing misallocation both within and across industries. I quantify the importance of inter-industry misallocation and explore its potential role in explaining TFP gaps across countries.

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